8-K: Authentic Holdings Executes Debt Exchange Agreements, Issues Series E Preferred Stock

Authentic Holdings, Inc. entered into debt exchange agreements with its President and CEO, converting $2 million in debt into equity and secured promissory notes.

Summary

• Authentic Holdings, Inc. entered into debt exchange agreements with Chris Giordano and Paul Serbiak on March 13, 2025.
• The agreements converted an aggregate of $2,000,000 in debt into equity and other consideration.
• Mr. Giordano converted $1,500,000 in debt into 50,910 shares of Series E Preferred Stock, 350,000,000 shares of common stock, and a $227,209 secured promissory note.
• Mr. Serbiak converted $500,000 in debt into 29,090 shares of Series E Preferred Stock, 35,000,000 shares of common stock, and a $22,702 secured promissory note.
• The Board of Directors designated a class of preferred stock entitled Series E Preferred Stock, consisting of up to 80,000 shares.
• The Series E Preferred Stock has no voting rights and no dividend rights except as declared by the Board.
• Holders of Series E Preferred Stock are entitled to $25 per share in liquidation before common and other preferred stockholders (excluding Series D Preferred).
• Upon an uplist to a national exchange and net income of at least $1,000,000 in a 12-month period, the Series E Preferred Stock will automatically convert into 55% of the issued and outstanding common shares.

Sentiment

Score: 6

Explanation: The debt exchange is a positive step for the company's financial health, but the potential dilution and control shift associated with the Series E Preferred Stock warrant caution.

Positives

• The debt exchange reduces the company's debt by $2 million.
• The conversion of debt to equity could improve the company's balance sheet.
• The Series E Preferred Stock conversion feature incentivizes uplisting and profitability.
• The secured promissory notes have a relatively low interest rate of 5.0%.

Negatives

• The issuance of a large number of common shares could dilute existing shareholders.
• The Series E Preferred Stock grants significant control (55% of common shares upon conversion) to the holders under certain conditions.
• The company is relying on exemptions from registration under the Securities Act of 1933 for the issuance of these securities, which could limit their transferability.

Risks

• The company's ability to achieve an uplisting to a national exchange and $1 million in net income is uncertain.
• The value of the common stock could be negatively impacted by the significant dilution resulting from the debt exchange.
• The secured promissory notes are secured by the company's assets, which could limit the company's financial flexibility.
• Failure to comply with the terms of the secured promissory notes could result in default and loss of collateral.

Future Outlook

The company aims to achieve an uplisting to a national exchange and improve its financial performance to trigger the conversion of the Series E Preferred Stock.

Industry Context

Debt-to-equity swaps are a common strategy for companies seeking to improve their balance sheets, particularly smaller companies with limited access to capital markets. This transaction is a way for Authentic Holdings to reduce its debt burden and potentially attract new investors.

Comparison to Industry Standards

• Debt-to-equity swaps are frequently used by companies in financial distress or those seeking to restructure their balance sheets.
• The terms of the Series E Preferred Stock, particularly the conversion trigger based on uplisting and profitability, are designed to align the interests of the investors with the company's long-term success.
• Similar transactions can be seen with companies like AMC Entertainment, which has used debt-for-equity swaps to manage its debt load.
• The 55% conversion to common shares is a significant amount of equity to give up, and is higher than similar transactions with companies such as Virgin Australia which gave up 35% of equity to bond holders.

Corporate Governance

Related Party Transactions

• The debt exchange agreements were entered into with Chris Giordano, the company's President and Director, and Paul Serbiak, the company's Chief Executive Officer and Director.

Stakeholder Impact

• Existing shareholders may experience dilution due to the issuance of new common shares.
• The debt exchange could improve the company's financial stability, benefiting all stakeholders.
• The conversion of Series E Preferred Stock could significantly alter the ownership structure of the company.

Next Steps

• The company needs to execute the debt exchange agreements.
• The company needs to file the Certificate of Designation for the Series E Preferred Stock with the Nevada Secretary of State.
• The company needs to work towards achieving an uplisting to a national exchange and $1 million in net income to trigger the conversion of the Series E Preferred Stock.

Key Dates

Keywords

Debt Exchange, Series E Preferred Stock, Secured Promissory Note, Equity Securities, Authentic Holdings, Debt Conversion